By Brian L. Hill
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| Brian L. Hill |
When James Cash Penney founded the J C. Penney Co., Inc. more than 110 years ago, it is unlikely that he could have imagined 1,100 retail stores in many of the most desirable shopping malls of the country. But his vision -- treating customers the way he wanted to be treated himself: fair and square -- is shaping the future of this retailer as it reinvents itself.
Although consumer spending has been significantly impacted in recent years, JCPenney has been trending lower than other retail stores, and losing market share. Where other stores see average profits per square foot of $500 to $600, according to John Bemis of Jones Lang LaSalle, JCPenney has been hovering around $200 per square foot. Clearly, the time for change has come. In November 2011, Ron Johnson announced that he stepping down as Apple’s senior vice president for retail to take the helm as CEO of JCPenney. No stranger to the world of retail, it was Johnson who led Target to become the “cool” alternative to Walmart during the 1990s. Not surprisingly, the move from selling the hippest consumer electronics to a company best known for its selection of “mom jeans” raised a few eyebrows in the business world.
“I chose J.C. Penney because I think it's the single biggest opportunity in American retailing,” Johnson stated in an interview with MSN Money’s Anne D’Innocenzio. “Our number one competitor is ourselves and our way of thinking, which is informed by decades of experience.”
Asked what lessons he learned during his years working with Steve Jobs, Johnson replied, “The importance of doing everything you do to your very best.”
To accomplish his mission of reinventing a retailer often described as boring or dowdy, Johnson wants to establish JCPenney stores as a destination. His goal: To make the store a place people love to come to, a store that is more than a store to people, as he wrote in a post at the Harvard Business Review.
This will entail a change in the architecture as much as it will require a change in attitude for employees and customers alike. According to USA Today, architectural changes “will include Main Street, a series of 80 to 100 brand shops similar to the Sephora cosmetics ones it has in stores to replace the dozens of racks common in department stores. It also plans to open areas in all stores called Town Square, a place that will offer services and expert advice.”
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| New CEO Ron Johnson of JCPenney presents his new vision for the company. |
Obviously the Apple Genius Bar served as inspiration for integrating service with product, but as Johnson pointed out, it took several years before the idea caught on with consumers. But alas, architectural renovations will not be enough to transform JCPenney’s image and profit margin. Following Johnson’s arrival, the company has announced changes that challenge decades of best practices in retail strategy. Most notable -- ending the endless sales promotions.
Last year the chain had 590 separate sales, and according to USA Today, 72 percent of revenue in 2011 came from merchandise discounted by 50 percent or more. Asked why, Johnson said that he felt consumers are insulted by such pricing strategies. Instead, JCPenney will offer “everyday pricing” similar to Walmart’s successful pricing model. Also worth noting is that prices will be simplified. As USA Today noted, “you won't see jeans with a price tag of $19.99, but rather $20.”
Central to Johnson’s new retail strategy is another concept from the Apple playbook. In many retail environments, sales staff members receive commissions as part of their pay. This creates an incentive for the employee to encourage consumers to increase purchases. As was the case at Apple, staff will not receive commissions. According to Johnson, employees will therefore be “focused on building relationships and trying to make people's lives better.”
In an era in which more and more consumers are turning online for purchases, JCPenney is banking its future on providing a compelling experience in order to battle the convenience of e-commerce. But that doesn’t mean that it is ignoring online interaction. In fact, Johnson advocates integration of the physical and the virtual by leveraging mobile internet with the in-store experience.
While JCPenney has not yet unveiled the specifics of how this might work, a tech start-up offers a glimpse. Getsignature, based in San Francisco and led by former Microsoft staffer David Hegarty is an app for the iPhone that allows consumers to interact in a unique way while in retail establishments. In essence, the app serves as a virtual shopping assistant, alerting users of various events, new items from favorite brands, and in-store greetings with the latest news. Sales associates will also receive alerts when users of the app are in the store, and shoppers can interact and schedule appointments with staff. So far, Johnson has by all accounts, led a very successful career in retail. After leaving an indelible impression on both Target and Apple, can he transform the buying experience and save JCPenney from continued decline? Or as he put it, “how do we reinvent the store to enrich our customers' lives?” Only time will tell.
Brian L. Hill is a fourth-generation construction professional and helps others to achieve more from less through business development, digital media and construction consulting. He shares his passion for the pursuit of quality in the built environment at www.aecforensics.com.